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Efficient Management Verifications to Prevent Errors and Fraud

Guidelines for managing authorities to verify co-financed operations' expenditure to ensure compliance with regulations to prevent errors and fraud.

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Efficient Management Verifications to Prevent Errors and Fraud

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  1. Management verifications Franck Sébert European CommissionDG Employment, Social Affairsand Equal Opportunities

  2. Issued in April/May 2008 and finalised 21 May in COCOF To assist managing authorities (MA) and their intermediate bodies (IB) Key control requirement to prevent errors and fraud Commission guidance note

  3. Article 60 of Regulation (EC) N°1083/2006 details the functions of the managing authority Art. 60 (b) part 1: “The managing authority (MA) shall be responsible (…) for verifying that the co-financed products and services are delivered and that the expenditure declared by the beneficiaries for operations has actually been incurred and complies with Community and national rules (…).” Legal basis - Council regulation

  4. Article 13 (2) of Regulation (EC) N° 1828/2006: The verifications (…) shall cover administrative, financial, technical and physical aspects of operations, as appropriate. Legal basis-Implementing rules

  5. Article 13 (2) of Regulation (EC) N° 1828/2006: Verifications shall ensure that the expenditure declared is real, that the products or services have been delivered in accordance with the approval decision, that the applications for reimbursement by the beneficiary are correct and that the operations and expenditure comply with Community and national rules. They shall include procedures to avoid double-financing of expenditure with other Community or national schemes and with other programming periods. Legal basis-Implementing rules

  6. Article 13 (2) of Regulation (EC) N°1828/2006: Verifications shall include the following procedures: (a) administrative verifications in respect of each application for reimbursement by beneficiaries (b) on-the-spot verifications of individual operations Legal basis-Implementing rules

  7. Article 13(3) of Regulation (EC) N°1828/2006: Where on-the-spot verifications (…) are carried out on a sample basis (…) the managing authority shall keep records describing and justifying the sampling method and identifying the operations or transactions selected for verification. Legal basis-Implementing rules

  8. General observations on the objective, scope and organisation of management verifications Administrative verifications On-the-spot verifications European Territorial Cooperation (ETC) Main themes

  9. General observations on the objectives, scope and organisation of management verifications Administrative verifications On-the-spot verifications European Territorial Cooperation (ETC) Main themes

  10. Should cover administrative, financial, technical and physical aspects of operations Include verifications on the reality, substance and effectiveness of projects:- products or services delivered in accordance with approval decision, - outputs are checked against specifications… Verification of compliance with Community and national rules Scope of management verifications

  11. Specific issues including respect of compliance with Community policies detailed in section 3 of guidance note 3.1 Public Procurement 3.2 Environment 3.3 State aid schemes 3.4 State aid 3.5 Financial engineering instruments 3.6 Revenue generating projects 3.7 Durability of operations 3.8 Equality and non-discrimination Scope of management verifications

  12. Management verifications vs - selection of operations - implementation of operation as beneficiary Distinct from audits under/by Audit Authority Require appropriate staff level and expertise for both administrative and on-the-spot verifications May be outsourced but with strict supervision Organisational aspects

  13. Strategy for controls PREVENTIVE ACTIONS DOCUMENTARY VERIFICATIONS ON THE SPOT VERIFICATIONS 4 aspects covered as appropriate NOT ZERO ERROR BUT RISKS UNDER CONTROL A strategy to manage risks

  14. General observations on the objective, scope and organisation of management verifications Administrative verifications in respect of each application for reimbursement by beneficiaries On-the-spot verifications European Territorial Cooperation (ETC) Main themes

  15. Desk-based, documentary verifications All payment applications (interim / final) have to be verified Before declaring expenditure to level above and before certification of expenditure to Commission by CA Some horizontal aspects checked once for all (in first claims or at closure of operation) Administrative verifications

  16. Examination of progress report Examination of expenditure claim Examination of requested supporting documentation : (lists of) receipts / invoices lists of outputs lists of participants and timesheets etc. Administrative verifications

  17. Aim to verify (inter alia): Correctness of claim No double funding Eligibility period of expenditure declared Compliance with grant decision / contract Existence of adequate audit trail Compliance with eligibility rules, publicity requirements, EC policies… Administrative verifications

  18. Efficient only if grant decision / contract absolutely clear : clear definition of operation, expected outputs, financing plan, eligibility rules, administrative (reporting) obligations of beneficiary… Training for verification staff on risk factors, methodology, legal and accounting principles, eligibility rules… Verifications should be documented in each operation file : checklists duly completed and signed by staff Efficient & effective verifications

  19. All claims / all key documents to be verified Huge volume of supporting documents held by beneficiary? Possibility to focus verifications on samples of items, based on risk factors: type of beneficiary / of operation value / type of expenditure items type of physical progress indicators past experience … Can be complemented by random sample Good practice to register risk factors and methodology in writing (can be part of checklist) Efficient & effective verifications

  20. MA may also modulate the extent of its own administrative verifications by taking into account control procedures in place at beneficiary level (public organisations / audit certificates) BUT does not replace / substitute MA/IB verifications Efficient & effective verifications

  21. General observations on the objective, scope and organisation of management verifications Administrative verifications in respect of each application for reimbursement by beneficiaries On-the-spot verifications of individual operations European Territorial Cooperation (ETC) Main themes

  22. Reality of operations, delivery of products or services in accordance with terms of reference, physical progress as reported Technical and physical aspects of operation Administrative capacity of beneficiary and/or project infrastructure (eg training infrastructure) Objectives of on-the-spot verifications

  23. Compliance with publicity requirements Expenditure declarations against accounting reality (but not a complete financial audit) Existence of adequate audit trail Objectives of on-the-spot verifications

  24. Sampling - risk oriented, complemented by random Sampling method documented and records of selected operations and transactions kept (Short) written report in the operation file Organisation of on-the-spot verifications

  25. Normallywhen project well under way (physical and financial progress) Operations of intangible nature (ESF type): during project implementation to attest reality of activity Multiannual operations : at various occasions, with initial visit to ensure preventive effect; final visit after completion of investment With / without prior notice to beneficiary Timing of on-the-spot verifications

  26. General observations on the objective, scope and organisation of management verifications Administrative verifications in respect of each application for reimbursement by beneficiaries On-the-spot verifications of individual operations European Territorial Cooperation (ETC) Main themes

  27. European Territorial Cooperation • Complex structure involving combinations of Member States / Regions and / or non-Member States • Controllers appointed in each MS to carry out verifications / each MS responsible • Good practice - sharing results with lead beneficiary controller

  28. Management verifications, Audit Trail and link with certification of expenditure

  29. MA basic source of information for certification MA to keep a complete audit trail for each operation, as defined in article 15 of regulation No1828/2006 Single file per operation reflecting this full audit trail Files ready at any moment for verifications by CA or audits by AA, EC, ECA Provide adequate information to CA for purpose of certification

  30. At start up MA to inform CA on description of control systems, procedures, manuals and check lists used; strategy to monitor risk, risk analysis, methodology for sampling (on the spot verifications ) Provide adequate information to CA for purpose of certification

  31. Then Periodical report to CA on procedures effectively operated by MA and IB Report may include list of checks, coverage, detected irregularities and types, corrections made through administrative and on-the-spot verifications Keep lists of operations declared for partial closure Provide adequate information to CA for purpose of ceritification

  32. Good practice: formal declaration by MA to CA at each expenditure claim Need for full cooperation and transparency with CA; respect decision of CA not to certify expenditure at this stage Accompany each claim of expenditure by information requested by CA If claim sent back in full or partially, provide timely information requested by CA Relations MA / CA

  33. KEY POINTSFOR MANAGING AUTHORITIES

  34. Carry out programme risk assessment, develop a strategy for managing risks. This is the reference point for intensity of verifications, sampling... Focus on actions to prevent errors – information and advice to beneficiaries, access to information, capacity-building and training for beneficiaries, clear defined operations and financing plans, training... Focus on outputs and not just procedures – monitor and review results of control system – is there evidence of good management of risk? KEY POINTS

  35. Provide guidance, information, technical support and advice to staff in charge of management verifications – standardised manuals and checklists - training – create information networks Do the same for intermediate bodies Carry out regular self-assessment and regularly review work performed by IB (quality review) Document all control activity in individual files for perfect audit trail KEY POINTS

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